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Juneau's commercial real estate market picks up momentum

National retail and restaurant chains appear to be scoping out city properties, brokers say

Posted: Sunday, October 28, 2007

Commercial real estate in Juneau appears to be gaining momentum as the tourism industry keeps retail property sales busy downtown and an influx of big box retailers has piqued the interest of smaller national chains, brokers report.

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"(National retail chains) study each other very carefully and they realize Juneau is an economic hub for the entire region. People like to come here to shop from around Southeast Alaska," said Carlton Smith, a broker who deals exclusively in commercial real estate.

Smith declined to name who has contacted him, as did Larry Spencer, another commercial broker who confirmed there's increased interest from certain retail and restaurant chains now that "anchor" stores such as Home Depot and Wal-Mart have moved to town.

"There's a series of smaller tenants that co-locate and follow those stores. I'm getting calls that are fitting into those categories. There are other retailers that are surveying the market, coming in and out of town looking," Spencer said.

Building permits issued

Numbers listed are year to date as of Oct. 15

2004 2005 2006 2007

New residential: 76 94 75 63

Value: $23 million $27 million $23 million $16 million

New commercial: 25 23 39 36

Value: $12 million $10 million $30 million $46 million

Source: Juneau Community Development Department, www.juneau.org/cddftp/buildpermstats.php

Because of the small number of sales, year-to-year averages do not usually reflect overall trends, as they do in the residential market.

However, land values do appear to be rising.

Commercial land in Lemon Creek sold for $8 to $9 per square foot in 2005, while more recent sales went for $14 to $16 per square foot, Smith said. Right now, only a few properties are on the market areawide, and sellers are asking $17 to $22 per square foot.

Smith brokered a land sale on Old Dairy Road that will house the largest office complex built in Juneau since the 1980s. Called "Entrance Pointe," its first phase will include 17,500 square feet of office space for four tenants.

Bruce Denton, general contractor for the $3.2 million Entrance Pointe project, said demands for labor in the commercial sector have driven up wages, with entry level workers earning $16 per hour, and up to $45 per hour for higher skilled workers.

"It's been obscenely busy for commercial projects," Denton said. "The biggest challenge is finding help. It's just the opposite of what's going on with residential. The boom in commercial has driven up wages for the residential market."

Spencer is the listing agent for the Valley Professional Center, a commercial subdivision being developed near the intersection of Egan Drive and Glacier Highway near the Nugget Mall. The seven commercial lots are being equipped with roads and utilities covering 5.3 acres, and could house retail or office space. Buyers will have discretion on how to develop their lots.

Spencer said he's "cautiously optimistic" about the commercial real estate market, while Smith characterized it as "gaining momentum."

Spencer believes the city will have to streamline to encourage development.

"One of the problems of development is the accumulating and burdensome regulatory requirements by the departments of engineering, zoning and building," he said.

Those looking to develop commercial real estate in Juneau face other challenges in finding suitable land, space for parking and visibility from the highway, Smith said. Retailers look for land with good visibility from highway corridors. He sees all of Old Dairy Road getting upgrades in the near future because of that.

"We see the face of Old Dairy Road changing. Why? Because there's 60,000 cars going by every day," Smith said. "We are going to see an upgrading of office and walk-up retail. People are just demanding newer, more exciting, more visible space."

While credit woes have had some impact on commercial real estate market, other factors have a strong influence on its health as well, these brokers report.

"The strength of the regional economy is a pretty good barometer," Smith said, who was one of four brokers on the Home Depot deal.

For Spencer, the bottom line is the return an investor can expect to get on an investment, called the capitalization rate. That rate is 9 to 9.5 percent return on investment in Juneau, compared to rates as low as 7 percent down south. That good rate is balanced by increased risk in Juneau, he said.

"We are a very isolated location. Down south, national chains are a source of stability. Here we have an exciting and dynamic market of many local entrepreneurs and we get a lot of chains that come and go and they aren't always successful here," Spencer said. "That makes the market a little bit risky, but there's a little greater return to building owners (if tenants survive)."



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